Reference no: EM132840685

Problem 1: Anil, Dragonfly Ltd.'s auditor, is conducting a subsequent events review to ensure that any events that occur after the balance sheet date (December 31, 20X5) and that may require adjustment or disclosure in the financial statements have been identified. Which of the following will Anil say is correct regarding the subsequent event identified?

a) A major accounts receivable customer is in liquidation due to a destructive fire that occurred on January 10, 20X6 (prior to the audit report being issued): an adjustment should be made to the financial statements.

b) A major accounts receivable customer is in liquidation due to a destructive fire that occurred on January 10, 20X6 (prior to the audit report being issued): there is no need for an adjustment or notes disclosure.

c) Dragonfly filed a lawsuit on December 27, 20X5, for $1.5 million. They won the lawsuit on January 2, 20X6, and received the payout on January 10, 20X6 (prior to the audit report being issued): an adjustment should be made to the financial statements.

d) Dragonfly filed a lawsuit on December 27, 20X5, for $1.5 million. They won the lawsuit on January 2, 20X6, and received the payout on January 10, 20X6 (prior to the audit report being issued): there should be a note disclosure only